The Detroit Pontiac Railroad Company was incorporated by an act of the territorial legislature in 1834 and the Oakland Ottawa Railroad Company by an act passed in 1848. A connection between these roads was provided for in Act No. 96, Laws of 1850. By Act No. 140, Laws of 1855, the name of the latter was changed to the Detroit Milwaukee Railway Company and it was authorized to purchase the property of the former. Section 9 of this act reads as follows:
"The said company shall, on or before the first day of July, pay the State treasurer an annual tax of one per cent. on the capital stock of said company paid in, which tax shall be in lieu of all other taxes, except for penalties imposed upon said company by its act of incorporation, or any other law of this State. The said tax shall be estimated upon the last annual report of said corporation."
Act No. 96, Laws of 1859, provided that purchasers on foreclosure sales of railroad property might continue operations under the charter and laws applicable thereto and might issue new and additional stock to themselves. A foreclosure sale of the property of the Detroit Milwaukee Railway Company was afterwards had and a reorganization perfected under the present name of the defendant company.
In this proceeding we are called upon to place a construction upon the taxing provision contained in section 9 above quoted. It is the claim of the plaintiff *Page 598 (the State) that the tax should be estimated upon "the capital investment" of the defendant, while the defendant contends that the words "capital stock paid in" have a definite meaning: that they mean "the moneys or property paid in by the shareholders on account of their stock." It is conceded that the par value of the outstanding stock was $2,517,140 and that the value of defendant's property was upwards of $8,000,000 at the time this suit was tried. The trial court was inclined to agree with the State in its interpretation of the statute but held that —
"the practical construction given to the provisions of this contract by the State and by the railroad company and so long continued is decisive of the legislative intent in respect to the basis of taxation."
From the decree entered dismissing the bill plaintiff appeals.
The rights and liabilities of the defendant under Act No. 140 have been the subject of much litigation. In Attorney General v. Joy, 55 Mich. 94, decided in 1884, the State by quo warranto assailed the defendant's right to exercise and use the franchise under which it assumed to be acting. It was held that the defendant company was possessed of all the rights and privileges granted to the Detroit Pontiac Railroad Company under said act, and that a binding contract was created thereby. A petition for a rehearing, filed in 1914, was denied (181 Mich. 266). In People, ex rel. Attorney General, v.Railway Co., 157 Mich. 144, the validity of defendant's special charter was again attacked and sustained, and in the case decided with it, one to collect a tax from defendant in disregard of the statute, the judgment of the lower court in favor of defendant was affirmed. Somewhat similar questions were raised and decided adversely to the State in Powers v.Railway Co., 201 U.S. 543 (26 Sup. Ct. 556). These cases will hereafter be referred to.
The primary object in the interpretation of statutes *Page 599 is to determine the intent of the legislature as it may be gathered from reading the entire act. "Its manifest intent must prevail over the literal sense of terms." Township of Stambaugh v. Iron County Treasurer, 153 Mich. 104, 107.
The claim of the State that the words "capital" and "capital stock" are frequently used synonymously, particularly in tax statutes, is supported by abundant authority. In 1 Desty on Taxation, § 74, it is said:
"Capital and capital stock are in legal intendment synonymous, and are used in legislative acts as equivalent terms, though strictly not of the same meaning. Capital stock means not shares of stock, either separately or in the aggregate; but is intended to designate the property of the corporation subject to taxation, not in separate parcels, but as a homogeneous unit, partaking of the nature of personalty, and subject to the burdens imposed on it, at the domicile of the owner where it exercises its corporate functions, and where its business is done."
See, also, Burroughs on Taxation, p. 142; 1 Elliott on Railroads (8d Ed.), § 90; 1 Cook on Corporations (8th Ed.), § 8; 2 Clark Marshall on Private Corporations, § 375.
A tax upon the capital of a corporation has almost uniformly been held to be a tax upon the property in which the capital has been invested (Bank Tax Case, 2 Wall. [U.S.] 200), and the same construction has been placed upon a provision for taxing the capital stock. Delaware, etc., R. Co. v. Pennsylvania,198 U.S. 341 (25 Sup. Ct. 669); Wright v. Banking Co., 216 U.S. 420 (30 Sup. Ct. 242). Many State courts have so held. See exhaustive note in 58 L.R.A., beginning on page 514.
The language here employed is not "capital" or "capital stock," but "capital stock paid in." Counsel for the State urge that the words "paid in" were used simply to distinguish between the stock issued and that remaining in the treasury. They rely on the *Page 600 rule that exemptions from taxation are not favored; that words creating them must be given the narrowest meaning which will fairly carry out the intent of the legislature. East SaginawManfg. Co. v. City of East Saginaw, 19 Mich. 259, 279 (2 Am.Rep. 82). Were this a recent act and had not a construction been placed upon the language here used, not only by the administrative but also by the legislative and judicial departments of the State government, we would be much impressed by this claim and the many authorities cited in its support.
An examination of the several acts of the early legislatures providing for the taxation of railroads is instructive. Sections 5 and 6, chapter 21, title 5, Revised Statutes of 1846, read as follows:
"SECTION 5. Every company heretofore incorporated or hereafter to be incorporated within this State, for the purpose of constructing and using any railroad, canal or turnpike therein, shall pay a yearly tax to the State of three-fourths of one per cent. on the amount of the capital stock of such company paid in or secured to be paid, which tax shall be paid into the State treasury by said corporations respectively, on or before the first Monday of October in the year one thousand eight hundred and forty-seven, and in each year thereafter.
"SEC. 6. Such tax shall be in lieu of all State, county, township or other taxes in this State, on the capital stock of said corporations, and on the railroad, canal or turnpike constructed or used by any such corporation, and on all the real and personal property in which said capital stock shall be invested, and which shall be used and occupied by any such company, in accordance with the provisions of its charter, and the laws of this State, in the construction or use of such railroad, canal or turnpike."
Section 45 of Act No. 82, Laws of 1855, a general statute providing for the incorporation of railroads, reads:
"Every corporation formed under the provisions of this act, shall, on or before the first day of July, pay *Page 601 the State treasurer, an annual tax of one per cent. on the capital stock of said company paid in, which tax shall be in lieu of all other taxes upon the property of said company, whether real, personal, or mixed, except penalties by this act imposed; the said tax shall be estimated upon the last annual report of said corporation, but nothing contained in this section shall apply to any existing corporations."
The similarity of the language in this provision and that contained in the special act under consideration, enacted at the same session, will be observed.
This section was amended in 1869 (Act No. 142, Laws of 1869) to read as follows:
"SECTION 45. Every corporation formed under the provisions of this act shall, on or before the first day of July, in the year one thousand eight hundred and sixty-nine, and annually thereafter on or before the first day of October of each year, pay to the State treasurer, on the statement of the auditor general, an annual tax of one per cent. on the capital stock of said company paid in, and also upon all sums of money, whether arising from the net proceeds of said road, from municipal aid, from the sale of lands, or from other sources, as shall from time to time be invested in the original construction and stocking or in any new construction or stocking of said road, which tax shall be in lieu of all other taxes upon the property of said company, whether real, personal, or mixed, except penalties by law imposed; and such tax shall be estimated upon the last annual report of said corporation filed in the office of the auditor general, as required by section thirty-two of this act; but nothing contained in this section shall apply to any corporation existing at the time of the approval of the act of which this is amendatory, nor to alter, reduce, or in any way affect the tax of any corporation not formed under the provisions of said act: Provided, That no corporation formed under the provisions of the act to which this is amendatory, shall be liable to pay any tax on any money expended on any portion of its road which has not been opened for use."
This provision remained in force with but little change until 1873 (Act No. 198), when a law was *Page 602 enacted providing for the taxation of railroads upon their gross receipts.
If the legislature of 1855 intended that the words "capital stock paid in" should mean the capital, capital stock, capital assets or the entire property of a railroad, as is now claimed by the State, the amendment in 1869, providing that in addition to the tax on the "capital stock paid in" it should pay a tax upon all other sums invested in the construction or stocking of its road, would have been entirely unnecessary. The following proviso to section 1 of Act No. 94, Laws of 1861, relating to the defendant road, reads:
* * * "Provided further, That neither the foreclosure of the mortgage upon the road and franchises of said company, nor anything in the act in relation to mortgages against preferred stock in and delivery of goods by railway companies, approved February tenth, eighteen hundred and fifty-nine, or in this act, shall be construed in any way to affect or change the rule of taxation, as provided in the charter of said company, and which shall continue to be one per cent. upon the capital stock originally paid in, and upon such stock as may hereafter be paid into said company."
Section 26 of the act of 1848 (Act No. 234), already referred to, provided that the tax should be paid upon all sums invested in the Oakland and Ottawa road. The omission of any such provision in the act of 1855 can hardly be said to have been an inadvertence. The general law enacted in that same year contained a similar provision as to corporations organized under it.
The next action taken by the legislature was on the insistence of the governor. The fact that railroad corporations were paying less than their fair share of the taxes collected in the State had become so apparent that a special session was called and an urgent desire expressed by the governor that such inequality should be corrected. The repeal of the special charters *Page 603 granted to the defendant and other railroad companies was urged, even though such repeals might result in actions for damages against the State. The statute providing for the repeal of defendant's special charter will be found in Act No. 5, Pub. Acts, Extra Session, 1900.
In an early day this court was called upon to interpret the meaning of the words "capital stock paid in" in other railroad charters. The first case was People v. Railroad Co., 4 Mich. 398 . The act under which that company was organized provided for the payment of an annual tax of three-fourths of one per cent. upon its capital stock paid in, including the purchase money paid to the State, and also upon all loans made to the company for the purpose of construction, etc., and exempted all of the other property of the railroad from taxation. The question arose upon the taxation of a part of its capital stock paid in "not actually employed" by it in the State of Michigan. The defendant claimed the right to deduct an item of bonus paid on the sale of some of its stock and also the amount of certain bonds issued in exchange for those of another company which had not been disposed of. The opinion is instructive. We quote but one sentence:
"It is apparent that the legislature regarded all the capital stock paid in, and the loans made to the corporation for the purposes authorized by the charter, as "actually employed," whether actually expended in building the roads, etc., or on hand for that purpose, in the form of money, bills of exchange, or bonds drawing interest."
In Michigan Southern, etc., R. Co. v. Auditor General,9 Mich. 448, an interpretation was also placed upon these words. This case involved some of the same questions discussed and decided in the case just referred to. The right to deduct the value of steamboats destroyed by accident or lying idle within the *Page 604 limits of another State was also considered. Mr. Justice CAMPBELL said:
"The law does not undertake to follow the money of the company to its several destinations. When once borrowed, the company * * * should be held responsible for taxes on it, whether spent profitably or not. * * * The bill shows the steamboats were a part of the original Michigan investment. They remain in specie the property of the company, except one which was destroyed. I do not perceive how the original investment has been altered. And, therefore, I think no deduction should be made from the tax on their account."
Mr. Justice MANNING said that the legislature probably intended that the company should pay a tax of three-fourths of one per cent. "on what the construction of the road should cost the company" and discussed how such cost should be arrived at. He further said:
"The company is required to pay a tax of three-fourths of one per cent. annually to the State on its capital stock paid in, and upon all loans to the company for constructing the road. * * * It was not intended to exempt from taxation stock which the company, for some imaginary or actual past or future benefit, or other cause, might think proper to dispose of without an equivalent in money. * * * The auditor general is not authorized by law to make any deduction whatever."
In Lake Shore, etc., R. Co. v. People, 46 Mich. 193, andState Treasurer v. Auditor General, 46 Mich. 224, the amount of the tax to be paid by the Lake Shore road was involved. In the former case the declaration was filed by Otto Kirchner, attorney general. The question presented was whether investments made from a part of the capital stock paid in and loans made, actually employed without the State, were taxable. It will be observed that in none of these cases, though the amount of the tax to be paid by the railroad company was involved, did *Page 605 the State make any claim of a right to levy a tax other than on the capital stock paid in and loans made as the same should be determined from reports made in conformity with the statute.
The first effort made by the State to compel defendant to pay any taxes other than those for which it admits liability under the act of 1855 was in 1907. It then began the quo warranto proceeding to again test the validity of defendant's special charter and also filed the bill in equity in which the auditor general was complainant to enforce collection of a tax levied under the general law then in force, heretofore referred to. Both of these cases reached this court. 157 Mich. 144. The claim of the State at that time as to the interpretation which should be placed upon the taxing provision under consideration here was thus stated in the bill of complaint:
"That the purpose and effect of the said provision for taxation was to require the payment of a tax upon the separate shares of the capital stock of the said corporation in the hands of their individual holders and owners, and to exempt from taxation the said shares in the hands of such holders and owners, but the effect of said provision for taxation was not to exempt from taxation the capital of the said corporation or its railroad or property or to create a contract between the State of Michigan and the said Detroit Milwaukee Railway Company which would in effect exempt from taxation the said capital stock or road and property."
A decree was prayed for providing that the defendant company and its railroad and property be decreed —
"to be subject in all things to the general railroad laws of the State of Michigan and to Act No. 173 of the Public Acts of 1901, as amended, and its property liable to taxation thereunder."
And further:
"That in case it be determined that the said Detroit, *Page 606 Grand Haven Milwaukee Railway Company has or enjoys immunities or exemptions from taxation under the act of March 7, 1834, as affected by Act No. 140 of the session laws of 1855, that it then be decreed that such act and the exemptions from taxation therein contained" —
apply only to that part of the road constructed under the act of 1834. There was also a prayer for general relief.
In its answer the defendant denied the conclusions stated as to the effect of section 9 and averred that the purpose was to create a special contract to pay "an annual tax of one per cent. on its capital stock paid in" in lieu of all other taxes. It set up the different suits which had been begun against the defendant company in which its special charter was involved and the action of the auditor general in presenting a bill for taxes and receiving payment under the construction placed by the defendant on such section. And further:
"It further avers that by reason of the aforesaid recognition, sanction, ratification and construction, the complainant, and the State of Michigan represented by him, should be and is estopped to deny the application in full force of said contract relative to taxation."
In one of the briefs filed by counsel for the State in support of its claim as to the meaning of the term "capital stock paid in" it is said:
"Even if section nine is held to be a contract, and to exempt the capital stock in the hands of the corporation, still the taxes here involved should be sustained to the extent that they are levied upon the surplus or property of this corporation over and above the amount of the capital stock paid in.
"For, as said by the Supreme Court of the United States inBank of Commerce v. Tennessee, 104 U.S. 493: 'The exemption is not greater in its scope than the subject of the tax.'
"The subject of the tax is the capital stock. The *Page 607 capital stock paid in is shown by the record in this case to be the sum of $2,517,140. The assessed valuation of the property alleged in the 19th paragraph of the bill, and admitted in the answer, is, for the year 1903, $5,900,000."
A tabulation is then made showing that at the rate fixed the tax on the surplus over and above the capital stock paid in for that year would be $58,209.30.
In the quo warranto case the respondent was charged with unlawfully exercising certain franchises and privileges, to wit:
"4. The right, privilege, and franchise of perpetually paying the limited rate of taxation fixed by Act No. 140 of the Laws of 1855, to be paid and measured upon the capital stock of the Detroit Milwaukee Railway Company."
Both of these cases were decided adversely to the State.
Counsel for the State lay much stress upon the language used by Mr. Justice Brewer in the decision in the Powers Case,supra. In 1901, the legislature, acting under the power conferred by a recent constitutional amendment, enacted Act No. 173, providing that railroad companies should pay an ad valorem tax, averaging that paid on all other property in the State, on the actual value of their property employed in their business in this State. The auditor general was preparing to levy a tax on the defendant under this law and it filed a bill in the United States district court for the western district of Michigan to enjoin him from doing so. The plaintiff was granted the relief prayed for in that court (138 Fed. 264) and on appeal to the Supreme Court the decree was affirmed (201 U.S. 543 [26 Sup. Ct. 556]). It was held that the question of the validity of Act No. 140 as a binding, irrevocable contract between the State and the railway company was res judicata because of the holding in the Joy Case. *Page 608
The language used in this opinion must be considered in the light of the claims of the respective parties. That of the State was thus stated:
"Section 9 of the act of 1855 relates only to taxation upon capital stock paid in, and does not assume to exempt or limit taxation upon other property of the company."
It was argued:
"In view of the clear distinction between the stock in the hands of the shareholders, the capital stock, the property of the corporation, the surplus over and above the capital stock and the franchise, each may be regarded as separate and distinct classes of property, and the exemption, if one exists, be no further than the language clearly imports, viz., upon the amount of the capital stock paid in.
"But it is not the capital stock the State seeks to tax; it is the property of the railroad company; appraised at $6,195,000, while the amount of capital stock paid in, as shown by the bill of complaint is the sum of $2,517,140, showing property of the value of $3,677,860 in excess of the amount of capital stock paid in.
"Whether this excess is the result of accumulated earnings, or property produced by the sale of bonds, does not appear, but it is quite clear that it is a surplus and is the property of the corporation and subject to taxation, and it does not appear that any part of said capital stock paid in has been converted into the property taxed. If it did so appear, then the exemption could only extend to the amount of the capital stock paid in."
In the 5th subdivision of the brief filed by counsel for the defendant company its claim is thus stated:
"The terms 'Capital Stock Paid In,' as used in the charter tax limit, extend to and mean the corporate property in which that stock is invested.
"The company is to pay this tax. The words 'paid in' signify the capital amassed in the treasury. There is no thought in this language of the shares in the hands of the shareholders. It is capital collected, not capital distributed among the shareholders. This extends *Page 609 to the corporate property represented by the capital and in which the capital is invested. Railroad Co. v. Gaines,97 U.S. 697, 707; Delaware, etc., R. Co. v. Pennsylvania, 198 U.S. 354 (25 Sup. Ct. 669)."
In elaborating this argument, counsel, after referring to the difficulty of attempting to place a value upon railroad property because of its peculiar character, said:
"Therefore, in the presence of this difficulty it was agreed between the legislature and the company that the basis should be the total of the capital stock paid in.
"This was thought, and very properly thought, to represent the value of the property as being the amount of money spent in the land, work, labor, and material going to make up a railroad equipped for use. This was an elastic basis, for as new investments were made in new property the capital, and therefore the taxes, would be correspondingly increased. Instead of going to the property and valuing it in detail, the sum of money which produced that property is found and this is taken as a fair expression of that value. This is by no means an exemption. Exemption is a misnomer. It is a simple way of ascertaining the value. * * * Therefore we contend that the plan adopted was a convenient and an adequate expression of the entire value."
The court said:
"By section 9 the tax is 'on the capital stock of said company paid in.' Clearly that refers to the property which the corporation has received and presumably holds. It is not the individual property of the shareholders which is contemplated, but that which is in the treasury of the corporation, or included among its assets. This, as we have seen, is the ordinary meaning of the term 'capital stock.' Further, we find that this tax is to be 'in lieu of all Other taxes, except for penalties imposed upon said company.' In other words, the tax upon the company of one per cent. may be increased by penalties imposed *Page 610 upon the company, and in no other way. Again, the tax is to 'be estimated upon the last annual report of said corporation.' While such report might be expected to include not merely the property belonging to the corporation but also the number and names of the stockholders and the number of shares held by each, and possibly also the amount paid in by each, yet the word 'estimated' carries with it the idea of valuation rather than of mathematical apportionment. It suggests that the property reported by the corporation is to be the basis upon which the assessors shall make their valuation, so that the tax is 'estimated' upon that property rather than fixed by the mere process of multiplication or division. That the tax is to be paid by the company is of course not conclusive on the question, but it is in harmony with all the other provisions of the section. Still further, we have the practical construction placed by the authorities for a long series of years — continued up to the year 1898. Under those circumstances we are of opinion that the tax provided for by section 9 is a tax upon the property of the corporation and not a tax upon the shares of stock held by the shareholders. There was, however, a contract between the State and the corporation which prevented the subjection of the property of the corporation to any other than the tax prescribed in the statute."
The question here presented was not squarely before the court. In view of the position then taken by counsel for the State, that there is a "clear distinction between the stock in the hands of the shareholders, the capital stock, the property of the corporation, the surplus over and above the capital stock and the franchise," it cannot be assumed that the court intended to hold or even intimate that the words "capital stock paid in" included the property of the corporation as is here claimed. The court endeavored to point out that section 9 applied only to "the property which the corporation has received and presumably holds;" that which from the sales of its stock "is in the treasury of the corporation, or included among its assets," and not to the shares of stock in the hands *Page 611 of its stockholders. What was said, however, was meredictum as it is conceded that the question here considered was not there presented, discussed or decided.
There is no question but that, except as to the years in which litigation was pending, the auditor general of the State prepared and sent to defendant a statement of the annual tax due on the basis of one per cent. on its capital stock paid in as shown by its last annual report, and accepted payment thereof as a full compliance by the defendant with the requirement of the statute.
We have, therefore, a construction placed on the words "capital stock paid in" as used in this act by the legislative, judicial and administrative departments of the State government and, if the language were capable of more than one interpretation, such construction, so long continued, would, under practically all the authorities, be conclusive of the legislative intent. In People, ex rel. Attorney General, v.Railroad Co., 145 Mich. 140, the statute under consideration provided for a fixed rate of taxation upon defendant's capital stock paid in, including the purchase money paid to the State and also "upon all loans made to said company, for the purpose of constructing said railroad or purchasing, constructing, chartering, or hiring of the steamboats authorized by this act to be held by said company," and exempted the property of the company from the payment of any other tax. The question presented was whether the moneys so derived, when invested in property lying outside the limits of the State, but used by the defendant as a part of its system, was subject to such tax. It appeared not only that the auditor general of the State had accepted payment of taxes, on a valuation not including that so invested, for more than 40 years as a compliance with the requirement of the statute, but that by amendments to the act, approved by the *Page 612 governor of the State, the construction thus placed upon it had been recognized. In the majority opinion, written by Mr. Justice MONTGOMERY, it was said:
"We are of the opinion that the practical construction of the executive and legislative branches of government so long continued should be held decisive of the legislative intent."
Many authorities are cited by Mr. Justice GRANT in his opinion in support of this holding.
In Wright v. Banking Co., 216 U.S. 420, 426 (30 Sup. Ct. 242), it was said:
"That this is the way in which it has been read and interpreted by everybody who has had to do with the matter of taxation in an official way since 1845, when the railroad seems to have been finished, affords strong evidence that this construction accords with the intent of the charter. Aside from at least sixty years of legislative and executive acquiescence in reading this partial exemption as applicable to the capital stock of the company, there has been a series of cases decided by the supreme court of Georgia which involved the meaning of this clause. In each case the court has held, either, that the whole of the capital was exempt in whatever form invested, or so much of the investment as corresponded in value to the authorized capital stock."
See, also, Attorney General v. Lumber Co., 164 Mich. 625.
We have given due consideration to this case, fully appreciating its importance. It is unfair and unjust that this defendant should be permitted to escape from paying a tax upon its property upon the same basis as that of other railroad corporations doing business in the State. A greater burden is also thereby imposed on all other taxpayers in the State. But courts cannot make laws; they can but interpret them in conformity with the legislative intent. It should be borne in mind that the tax provided for in section 9 was the same as that then imposed on railroad corporations *Page 613 under the general law. The advantage gained by the defendant, and which has so greatly inured to its benefit, has been due to the holding that the contractual relation established by the act was not subject to change by either amendment or repeal. This was settled for all time in the Joy and Powers Cases,supra.
The decree is affirmed.
CLARK, C.J., and MOORE, STEERE, and WIEST, JJ., concurred with SHARPE, J. McDONALD and FELLOWS, JJ., did not sit.